Lehman files for bankruptcy

By Dan Wilchins

NEW YORK (Reuters) - Lehman Brothers Holdings filed for bankruptcy protection after trying to finance too many risky assets with too little capital, becoming the largest U.S. bankruptcy and the highest-profile casualty of the global credit crisis.

Lehman is expected to sell most of its businesses, including its broker-dealer operations and its Neuberger Berman asset management unit.

Those units did not file for bankruptcy protection and are operating, but customers are often jittery about trading with a company whose parent is bankrupt, so selling the units before too many customers leave is crucial.

"Much of (Lehman's) asset value at the end of the day is tied up in its credibility, and that takes a significant hit early in a bankruptcy case," said Jack Williams, resident scholar at the American Bankruptcy Institute and a professor at Georgia State College of Law.

A sale of the investment management division, which includes Neuberger Berman, is close to being announced, a person familiar with the matter said. Bain Capital, Hellman & Friedman, and Clayton, Dubilier and Rice have placed bids, the person said. Lehman last week had planned to sell a stake in the business, but now it is selling the entire unit.

But there are also assets, such as Lehman commercial mortgage bonds, which will be more difficult to sell and will probably be sold at a cut-rate price, analysts said. That in turn might force other banks to mark down the value of their assets, perhaps pressuring them to raise capital, wrote Meredith Whitney, analyst at Oppenheimer.

"We expect the financial markets to be under unprecedented strain over the next several days," Whitney wrote late Sunday.

That strain was evident on Monday. Major U.S. stock market indices turned in their worst day since September 2001, and the Standard & Poor's 500 fell to its lowest level since October 2005. Lehman is set to exit the S&P 500 index after Tuesday's market close.